Economics Final (Chapter 10)

Factors of Production

Land Labor Capital Entrepreneurship

Economic Profit

= Total revenue- Total opportunity cost

Accounting Profit

Accounting profit = total revenue - expenses - depreciation

Economic Efficiency

Economic efficiency occurs when the firm produces a given quantity of output at the least cost. The economically efficient method depends on the relative costs of capital and labor. The difference between technological and economic efficiency is that technological efficiency concerns the quantity of inputs used in production for a given quantity of output, whereas economic efficiency concerns the cost of the inputs used.

Factors of Production (2)

Land earns rent. Labor earns wages. Capital earns interest. Entrepreneurship earns profit.

Land

The "gifts of nature" that we use to produce goods and services are land.

Entrepreneurship

The human resource that organizes land, labor, and capital

Implicit rental rate

The implicit rental rate of capital is made up of 1. Economic depreciation 2. Forgone interest

Normal Profit

The profit that an entrepreneur can expect to receive on average.

Human Capital

The quality of labor depends on human capital, which is the knowledge and skill that people obtain from education, on-the-job training, and work experience.

Capital

The tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services

Labor

The work time and work effort that people devote to producing goods and services

The Firm's Goal

To maximize profit

Firm

is an institution that hires factors of production and organizes them to produce and sell goods and services.

The four-firm concentration ratio

is the percentage of the total industry sales accounted for by the four largest firms in the industry.

A firm's opportunity cost of production

is the sum of the cost of using resources Bought in the market Owned by the firm Supplied by the firm's owner

Technological Efficiency

occurs when a firm uses the least amount of inputs to produce a given quantity of output.